Franchisees Are Part Of The Sales Process
From the beginning, franchisors have used franchisees as salespeople to praise their system. In earlier days, a franchisor chose and rewarded its ‘best performers’ for their testimonies. The practice certainly continues today, but it’s assumed to be in a more subtle fashion. But for buyers, how much weight should be given to these sources?
- The 2000’s saw a shift to more franchisors offering some type of financial performance reporting in their disclosure documents. The operative word here is ‘some,’ because that information, while perhaps accurate, may not do anything to enhance purchase due diligence.
- If a buyer finds the information of value in preparing financial projections, some franchisees may support said information. If they won’t or don’t, that’s another flag.
- The key to getting realistic information from franchisees is like anything else. First build a relationship.
- Note: A new franchisor may not have enough operating history on franchisees to supply financials, but if that’s the case, they could report on their model.
Franchisors Have To Sell More Than A Dream, Eventually
Using franchisees as shills when a concept is not viable is an old school practice that can still be in play. But it’s now more difficult to execute. If for no other reason, it’s just too easy to research endorsements and complaints online. There are many unhappy franchisees in the industry and they’re pretty easily identified.
Here’s good news. A franchisor has to make good on promises to care for the its system. If not, franchisees will be damning it. It’s hard to hide a bad franchise today.
If you’re a franchise buyer, you must protect yourself by performing serious due diligence.